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HVB Capital Asia Ltd., the securities arm of HypoVereinsbank in Tokyo, is considering establishing an equity derivatives desk by early next year. Mike Nagata, head of trading in Tokyo, said that as a securities firm, equity derivatives is a product it needs to offer. He added that as the government pushes through reforms Japanese firms will look to unwind cross-equity holdings via the use of derivatives.

Italian Investment bank MPS Finance is pricing a EUR352 million (USD300 million) hybrid collateralized debt obligation referenced partly to banca poploare di spoleto's loan portfolio. Giacomo Corsini, head of sales at MPS Finance in Siena, said spoleto's loan portfolio was diversified using credit default swaps to make it more attractive to investors and now 46% of it consists of credit default swaps. He added the 10-year deal will hit the market Monday.

KBC Financial Products plans to offer guaranteed funds on baskets of hedge funds to retail customers after the summer. Thomas Korossy, head of derivatives in New York, said in May it started offering options on baskets of hedge funds to institutional investors and is passing the final hurdles to offer similar options--structured as funds--to retail customers.

Nationalized banks in India, which make up roughly 80% of the country's banking sector, are starting to show interest in long-dated Indian rupee interest-rate derivatives for the first time, said Tarun Mohrotri, treasurer at HSBC in Mumbai.

Korea's Asiana Airlines is looking to enter interest-rate swaps to hedge floating interest-rate exposure on its U.S. dollar-denominated loan portfolio. C.S. Han, general manager-finance, said the airline wants to take advantage of current low interest rates. It has already hedged 40% of its U.S. dollar interest rate exposure over the past year, and plans to hedge the remaining USD1.3 billion of its dollar denominated liabilities.

Mexican peso/U.S. dollar implied volatility rocketed last week as currency options traders used the Mexican unit as a proxy for the Brazilian real and the Argentinean peso after the credit market forced the Argentine government to pay 14 interest on three-month paper in a bond auction last Tuesday. The move underscored a collapse in confidence in the Argentine peso's peg to the dollar.

UBS Warburg is recommending customers buy euro/sterling double no-touch barrier options to take advantage of a stable or falling euro. Shahab Jalinoos, foreign exchange strategist in London, said consumer confidence data coming out of the U.S. over the last several weeks has started to show signs of growth in the third and fourth quarters. But he added capital flows between the two markets have switched to favor the euro-zone, which has caused the bank to shift its outlook toward a more stable euro.

Negotiations over the payee tax representations to be made in an ISDA Master Agreement are often confusing, acrimonious and slow. U.S. negotiators, at the urging of expensive tax counsel, often insist that their foreign counterparties make comprehensive tax representations for U.S. tax purposes and deliver certain IRS tax forms to them. Typically, foreign counterparties resist making these representations because they don't understand the purposes behind them. However, these payee tax representations, and the related delivery of tax forms, serve important purposes.

Five-year credit default swap spreads on Sony widened to 20 basis points/30bps last week from 20bps/23bps three weeks ago, due in part to the company having to recall defective cell phones. Stephane Delacote, head of credit derivatives at BNP Paribas in Tokyo, said three and five-year protection traded and there was also "aggressive bidding" in the 10-year contract.

Phoenix Investments has rotated 5% of its portfolio, or $100 million, out of high yield into mainly Treasuries, says David Albrycht, portfolio manager with the Hartford, Conn.-based asset management firm. The move was done to hedge some risky positions while balancing duration.

AMR Investment Services plans to add a total of $100 million in investment-grade corporates and mortgage-backed securities over the next three months in anticipation of further steepening in the Treasury yield curve. Patrick Sporl, a portfolio manager of $1 billion in intermediate-term taxable fixed-income, says he will sell U.S. Treasuries and agencies all along the curve to maintain his neutral duration to the 4.5-year Lehman Brothers aggregate index. His strategy is based on the assumption that the curve will steepen another 75 basis points between the two- and 10-year sectors by year-end. As of last Monday, there was 125 basis points of daylight between those poles. Sporl believes the Federal Reserve will ease another 50 basis points by year-end, and the overall economy will begin a turnaround as earlier cuts begin to take effect, sending long-term rates higher.